KRA opens new battlefront with multinationals

Politics and policy

Kenya Revenue Authority (KRA) Commissioner General John Njiraini during a recent press briefing. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• The Kenya Revenue Authority has turned the heat on multinationals it accuses of using subsidiaries to avoid tax.
• So far, the battle over multinationals’ tax obligations has generated 40 cases before the arbitration tribunal and a similar number in court, underlining the KRA’s aggressiveness and the muscle of the companies on its radar.
• Tax experts said the suits are most likely related to the KRA’s interpretation of transfer pricing rules that the multinationals have contested.

The Kenya Revenue Authority (KRA) has turned the heat on cash-rich multinationals, accusing them of using grand tax evasion schemes to deny the government billions of shillings it needs to meet its obligations to the citizens.

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The taxman’s claims, which the multinationals deny, have sparked a flurry of multi-billion-shilling suits that are expected to define the future of corporate tax in Kenya. 

So far, the battle over multinationals’ tax obligations has generated 40 cases before the arbitration tribunal and a similar number in court, underlining the KRA’s aggressiveness and the muscle of the companies on its radar.

Tax experts said the suits are most likely related to the KRA’s interpretation of transfer pricing rules that the multinationals have contested.

“In most of the cases they are dealing with transfer pricing which deals with multinationals. Their understanding is that the multinationals are hiding their profits, which is not good because it interferes with taxpayer relations,” said Martin Kisuu, a tax consultant with Taxwise Consulting Limited.

Mr Kisuu described transfer pricing as a new area and a learning curve for everyone, and not a precise science heralding differences of opinion among practitioners.

The list of companies that have recently gone to court against the taxman’s mega tax claims include Kenya-Re, which is facing a Sh1.2 billion bill, and cement maker Bamburi which has been billed Sh942 million.

The KRA said its targeting of the firms is based on risk profiling and expansion into areas it has not aggressively pursued in the past.

“KRA usually picks on areas where compliance has been low and the legal framework previously hazy,” said commissioner for domestic taxes – large taxpayer office Pancrasius Nyaga.

READ: Tax evasion sting recovers Sh25bn from multinationals

The KRA has previously announced that it was pursuing a large number of multinationals for Sh25 billion following transfer pricing audits.

It started tightening the noose around transfer pricing in 2011 when it announced plans to increase the number of staff in the large tax department.

Transfer pricing involves use of foreign subsidiaries or related parties to drastically reduce taxes due to local authorities. The eruption of court cases is the culmination of the taxman’s audits that began in 2011.

Bamburi says in its annual report that its tussle with the KRA started in February 2012 when the authority issued it with a tax assessment bill of Sh3.9 billion composed of Sh2 billion as principal tax and penalties and interest amounting Sh1.9 billion.

“This assessment is in respect of the company’s corporate tax, value added tax and withholding tax affairs for the years 2007 to 2011,” the firm says.